From Witney Tilson’s email to investors
I enjoyed my weekend in Omaha at the Berkshire meeting, catching up with old friends, making new ones and, for the first time, running the 5k race on Sunday morning (at the end of this email are some of my pics from the weekend).
Buffett and Munger, despite their advanced ages (86 and 93) haven’t slowed down one iota mentally – it’s really quite remarkable.
The entire meeting was live-streamed by Yahoo Finance, which is archived here: https://finance.yahoo.com/brklivestream.
Attached are Adam Blum’s excellent notes.
I asked the last question of the meeting (starting at 6:23:50 in the archived video):
Good afternoon. I’m Whitney Tilson, a shareholder from New York.
Baupost’s Seth Klarman: the Fed has broken the stock market [Q4 Letter]
My question is related to the ones asked earlier about job cuts. Perhaps the only thing that makes American workers angrier than layoffs is to shut down an operation entirely and move the jobs overseas.
Ask anyone in Ohio or Michigan and they’ll tell you stories about companies that had been operating in those states for decades, benefitting from the educational system, infrastructure and so forth – things that were paid for by local taxpayers.
But then some high-paid consultants came along and showed the company how it could reduce its costs by relocating production to Mexico or China and, poof, the good U.S. jobs disappeared.
My observation is that most investors and those in corporate America today worship at the altar of “maximizing shareholder value”, which is code for doing whatever is necessary to boost the share price as high as possible.
But in doing so, companies are taking actions that make millions of workers feel, at best, fearful and left behind, and, at worst, deeply harmed by corporate America. It makes so many people so angry that I think it’s testing the post-WWII economic order, which is rooted in free trade, and even the strength of our democracy. I’d also argue that it was decisive in the last election.
So my question is: do you think that businesses should consider factors outside of pure economics when making these types of decisions? What obligations, if any, do they have to their employees and communities in which they operate? And lastly, if a Berkshire CEO came to you and asked for your approval to close a US operation and relocate it overseas to save money, what questions would you ask beyond the economics of this decision?
Their answer begins at 6:25:13. They focus on the broad benefits of free trade, while acknowledging that some people are hurt a lot, so it’s critical to have a safety net for them. This isn’t really where I was going with my question – but that’s what happens when you ask an overly broad/long question!
After the meeting, I did an interview with Yahoo Finance, which begins at 7:23:30. In it, I discuss why I think Berkshire is worth ~$300,000/share and what I was driving at in my question.
2) Hit tip to Doug Kass for collecting the 20 best Munger quotes of the meeting:
But the real show in 2017 was performed by the 93-years-and-four-months-old Charlie Munger, who stole the show with his zingers. Here are my favorite 20 quotes from the weekend:
1. "We were young and ignorant then; Now we're old and ignorant."
2. "Bought a department store in Baltimore: experience is like eating cockleburs - it really gets your attention."
3. "The investment world has gotten tougher. Maybe now we have small statistical advantages, when before it was like shooting fish in a barrel. It's OK to have things get a little harder when you are filthy rich."
4. "In the future, with our present size, in terms of rates of return will be less glorious than the past we keep saying it now we are proving it. But it is still a collection of businesses on average that has a better investment return than the S&P 500."
5. "A lot of other people are trying to be brilliant and we are just trying to be rational. Trying to be brilliant is very dangerous, particularly when gambling"
6. "If you protect your heirs from stupidity of others, you may have some good system, but I am not much interested in that subject."
7. "Over the extremely long term, all hydrocarbons will be used, including all the coal - they are huge resource for all of humanity and have no good substitute. I am all alone on this one, but I want to save them for the next generation. We will use every drop sooner or later, even a chemical feedstock. I expect natural gas to be short in supply eventually."
8. "I have avoided compensation consultants all my life. I hardly can find the words to express my contempt."
9. "I don't think we mind killing chickens and I do think we are against nuclear war."
10. "We don't want to go back to subsistence farming. I had a week of it and hated it growing up. I also don't miss the elevator operator sitting there with a crank. Why would we do it -- fire people? We had to in the past when businesses were dying. There's some political fallout, but nothing that isn't moral."
11. "I give you golf lessons while you dye my hair. It's like the royal family of Kuwait. We can't have all the work so concentrated to leave so many at leisure. But a few percent per year of gain is a wonderful thing. No one has ever complained about the advent of air conditioning. I am worried more about the change not being fast enough."
12. "We'll miss out on more, but that's our secret - we don't miss out on them all."
13. "It's a very good thing that Warren bought Apple. Either he's gone crazy or is learning. I prefer to think he's learning."
14. "Fish where the fish are. A good fisherman can find more fish in China; it's a happier hunting ground."
15. "It's deeply immoral. Doctors are feasting like a bunch of jackals on a carcass. A bunch of cardiologists in Redding got the idea that heart was a widow-maker and recommend heart surgery to everyone and got great results, because no one comes through heart surgery better than a man who doesn't need it. This department at Redding became a model for the whole system and then a priest didn't believe it and blew the whistle (of course he didn't - a dead priest wouldn't have a widow). The doctors thought what they were doing was good for people. The delusion that comes into people as they make money and do god-awful things should never be underestimated. You'd think hospital CEO would notice heart surgery rates were twenty times higher than normal and did they ever notice - they wanted the rest of the branches to perform more surgeries too. Disgusting!"
16. "To make teaching endurable, it has to have enough wise-assery in it. And we do."
17. "You've understated the horrors of the subject (depreciation) and the disgusting nature of people who brought that term to business; its like a real estate broker who said a 1,000-square-foot apartment was actually 2,000 square feet. Nobody in his right mind would think depreciation is not an expense. Now they are teaching it in the business schools - that is horror squared."
18. "Unemployment insurance exists for that exact reason. The capitalist system always hurts some people; there is no way to avoid it."
19. "Don't start spending the money yet. Otto von Bismarck said there are two things that no one should have to watch: the making of sausage and the making of legislation."
And my favorite Munger quote - when asked what is your dream?
20. "Oh, to be 90 again; if you've got anything you really want to do, don't wait until you are 93 to do it."
These quotes incorporate much wisdom, and Charlie and Warren's comments on Saturday provide important and value-added insights for investors around the world.
3) Ted Seides with some interesting thoughts on why he lost his bet with Buffett re. the S&P outperforming five fund of funds Seides picked:
Why I Lost My Bet With Warren Buffett
The S&P 500 had a great run as hedge funds lagged. Odds are that history won't repeat.
by Ted Seides
Nine years ago, Warren Buffett and I made a 10-year charitable wager that pitted the returns of five funds of hedge funds against a Standard & Poor’s 500 index fund. With eight months remaining, for all intents and purposes, the bet is over. I lost.
Full Berkshire notes linked below